Excerpt of President Coolidge’s Address before the National Republican Club at the Waldorf Astoria Hotel

New York, New York | February 12, 1924

Full speech available here.

[…] Out of an income of about $60,000,000,000 the people of this country pay nearly $7,500,000,000 in taxes, which is more than $68 for every inhabitant of the land. Of this amount the national Government collects about $3,200,000,000, and the State and local Governments about $4,300,000,000. 

As a direct burden this is a stupendous sum, but when it is realized that in the course of our economic life it is greatly augmented when it reaches the consumer in the form of the high cost of living, its real significance begins to be appreciated. The National and local Governments ought to be unremitting in their efforts to reduce expenditures and pay their debts. This the National Government is earnestly seeking to do. The war cost of more than $40,000,000,000 is already nearly half paid. Amid the disordered currencies of the warring nations our money is and has been maintained at the gold standard. Our budget has long since been balanced, and our debt-paying program is at the rate of $500,000,000 each year. In spite of all these expenditures, the next fiscal year has an estimated surplus revenue of over $300,000,000. 

This represents a great financial achievement in the past three years. In the first place, it was necessary to provide for more than $7,000,000,000 of short-time maturities. These have all either been paid or refunded, so that they will become due in the future of orderly intervals, when they can be retired or further extended. When it is realized that such large loans were made in a way that not only left business undisturbed but was scarcely perceptible to the public, the skill with which Secretary Mellon managed them can well be appreciated. 

Coincident with this was the even greater task of reducing national expenditures. Through legislative enactment and Executive efforts this has gone steadily forward and is now proceeding from day to day. Under the watchful care of the Budget Bureau every department is constantly striving to eliminate all waste and discard every unnecessary expense. 


All of this has laid the foundation for national tax reduction and reform. In time of war, finances, like all else, must yield to national defense and preservation. In time of peace, finances, like all else, should minister to the general welfare. Immediately upon my taking office it was determined, after conference with Secretary Mellon, that the Treasury Department should study the possibility of tax reduction for the purpose of securing relief to all taxpayers of the country and emancipating business from unreasonable and hampering exactions. The result was the proposed bill which is now pending before the Congress. It is doubtful if any measure ever received more generous testimony of approval. Opposition has appeared to some of its details, but to the policy of immediate and drastic reduction of taxes, so arranged as to benefit all classes and all kinds of business, there has been the most general approbation. 

These recommendations have been made by the Treasury as the expert adviser of the Government. They follow, in their main principle of a decrease in high surtaxes, which is only another name for war taxes, the views of the two preceding Secretaries of the Treasury, both of them Democrats of pronounced ability. They are nonpartisan, well thought out and sound. They carry out the policy of reducing the taxes of everybody, especially people of moderate income. They give to the country almost a million dollars every working day. 

The proposed bill maintains the fixed policy of rates graduated in proportion to the ability to pay. That policy has received almost universal sanction. It is sustained by sound arguments based on economic, social and moral grounds. But in taxation, like everything else, it is necessary to test a theory by practical results. The first object of taxation is to secure revenue. When the taxation of large incomes is approached with this in view the problem is to find a rate which will produce the largest returns. Experience does not show that the higher rate produces the larger revenue. Experience is all the other way. When the surtax rate on incomes of $300,000 and over was but 10 per cent. the revenue was about the same as it was at 65 per cent.  

There is no escaping the fact that when the taxation of large incomes is excessive they tend to disappear. In 1916 there were 206 incomes of $1,000,000 or more. Then the high tax rate went into effect. The next year there were only 141, and in 1918 but 67. In 1919 the number declined to 65. In 1920 it fell to 33, and in 1921 it was further reduced to 21. I am not making any argument with the man who believes that 55 per cent. ought to be taken away from the $1,000,000 income, or 68 per cent. from a $5,000,000 income; but when it is considered that in the effort to get these amounts we are rapidly approaching the point of getting nothing at all it is necessary to look for a more practical method. That can be done only by a reduction of the high surtaxes, when viewed solely as a revenue proposition, to about 25 per cent.

I agree perfectly with those who wish to relieve the small taxpayer by getting the largest possible contribution from the people with large incomes. But if the rates on large incomes are so high that they disappear, the small taxpayer will be left to bear the entire burden. If, on the other hand, the rates are placed where they will produce the most revenue from large incomes, then the small taxpayer will be relieved. The experience of the Treasury Department and the opinion of the best experts place the rate which will collect the most from the people of great wealth, thus giving the largest relief to people of moderate wealth, at not over 25 per cent. 

A very important social and economic question is also involved in high rates. That is the result taxation has upon national development. Our progress in that direction depends upon two factors—personal ability and surplus income. An expanding prosperity requires that the largest possible amount of surplus income should be invested in productive enterprise under the direction of the best personal ability. This will not be done if the rewards of such action are very largely taken away by taxation. 

If we had a tax whereby on the first working day the Government took 5 per cent of your wages, on the second day 10 per cent, on the third day 20 per cent, on the fourth day 30 per cent, on the fifth day 50 per cent, and on the sixth day 60 per cent, how many of you would continue to work on the last two days of the week? It is the same with capital. Surplus income will go into tax-exempt securities. It will refuse to take the risk incidental to embarking in business. This will raise the rate which established business will have to pay for new capital, and result in a marked increase in the cost of living. If new capital will not flow into competing enterprise the present concerns tend toward monopoly, increasing again the prices which the people must pay. 

The high prices paid and the low prices received on the farm are directly due to our unsound method of taxation. I shall illustrate by a simple example: A farmer ships a steer to Chicago. His tax, the tax on the railroad transporting the animal, and of the yards where the animal is sold, go into the price of the animal to the packer. The packer’s tax goes into the price of the hide to the New England shoe manufacturer. The manufacturer’s tax goes into the price to the wholesaler, and the wholesaler’s tax goes into the price to the retailer, who in turn adds his tax in his price to his purchaser. So it may be said that if the farmer ultimately wears the shoes he pays everybody’s taxes from the farm to his feet. 

It is for this reason that high taxes mean a high price level, and a high price level in its turn means difficulty in meeting world competition. Most of all, the farmer suffers from the effect of this high price level. In what he buys he meets domestic costs of high taxes and the high price level. In what he sells he meets world competition with a low price level. It is essential, therefore, for the good of the people as a whole that we pay not so much attention to the tax paid directly by a certain number of the taxpayers, but we must devote our efforts to relieving the tax paid indirectly by the whole people. 

Taken altogether, I think it is easy enough to see that I wish to include in the program a reduction in the high surtax rates, not that small incomes may be required to pay more and large incomes be required to pay less, but that more revenue may be secured from large incomes and taxes on small incomes may be reduced; not because I wish to relieve the wealthy, but because I wish to relieve the country. 

The practical working out of the proposed schedules is best summarized by the Treasury experts, who find that $92,000,000 a year will be saved to those who have incomes under $6,000; $52,000,000 to those who have incomes between $8,000 and $10,000; and that less than 3 per cent. of the proposed reduction would accrue to those who have incomes of over $100,000.  A married man with two children, having an income of $4,000, would have his tax reduced from $28 to $15.75; having $5,000, from $68 to $38.25; having $6,000, from $128 to $72; having $8,000, from $276 to $144, and having $10,000, from $458 to $234. 

In order to secure these results the Administration bill proposes to reduce the tax on earned income 25 per cent, and the normal tax on unearned income also 25 per cent. This would apply to all incomes alike, great and small, and would provide general and extensive relief. Further reductions would be secured by increasing the amount of income, exempt from surtaxes, from $6,000 to $10,000. Such surtaxes increase progressively until on incomes of $100,000 or more they reach the maximum of 25 per cent, which, with the normal tax of 6 per cent, make large incomes pay in all 31 per cent. It is also proposed to repeal many troublesome and annoying rates, such as admission taxes and sales taxes, the existence of which is reflected in the increased cost of doing business and the higher prices required from the people.

That is the tax measure which has been proposed, and which has my support. Because I wish to give to all the people all the relief which it contains, I am opposed to material alteration and compromise. It is about as far removed as anything could be from any kind of partisanship. At least, I do not charge that there is any party or any responsible party leadership that admits it is opposed to making taxes low and in favor of keeping taxes high. But the actions and proposals of some are liable to have just that result. I stand on the simple proposition that the country is entitled to all the relief from the burden of taxation which it is possible to give. The proposed measures give such relief. Other measures which have been brought forward do not meet this requirement. 

They have the appearance of an indirect attempt to defeat a good measure with a bad measure. You have heard much of the Garner plan. Brought forward to have something different, it is purported to relieve the greatest number of taxpayers. It gave not the slightest heed to the indirect effect of high taxes, or to the approaching drying up of the source of revenue and consequent failure of the progressive income tax, or to the destruction of business initiative. It is political in theory. When the effect of its provisions was estimated, it meant a loss of revenue beyond any expected surplus. It is impossible in practice. The people will not be misled by such proposals. It is entirely possible to have a first-class bill. I want the country to have the best there is. I am for it because it will reduce taxes on all classes of income. I am for it because it will encourage business. I am for it because it will decrease the cost of living. I am for it because it is economically, socially and morally sound. 

But the people must understand this is their fight. They alone can win it. Unless they made their wishes known to the Congress without regard to party this bill will not pass. I urge them to renewed efforts.